Commercial Loans – Take All Aspects In Consideration
As the saying goes, taking a loan is easier than surviving with it. A shrewd businessman is one who borrow but with an eye to repay it as soon as possible. Sometimes, business requirements arise because you get a new business order hat is hard to manage within your own business funds. You obviously cannot afford to lose big business opportunity only because the funds are not there.
These and other similar situations force you to take help of external sources of financing. These sources may be temporary or permanent, depending on the nature of funding. Large body corporate often have huge financial needs, and therefore, they resort to public financing by inviting deposits or going for a 'rights issue' meant for the existing shareholders. On the other hand, a new business concern or sole proprietorship undertaking would obviously not be able to take benefit of that sort - neither are these meant for them.
Before applying for commercial loans, first of all decide the type of debt financing that your business firm will be comfortably able to get. If you do not own any property in the name of firm, secured commercial business loans are out of question. You will have to rely on loans that do not require any security. These loans will offer you a limited amount - upto
Importance of a Commercial Loan Modification Firm
Commercial property owners slapped with foreclosure notices are taking aggressive measures to hold on to their assets. It is not that easy to acquire a property and to lose it just because of a few delinquent payments will not look good on their financial records. Values of real estate in the United States market have dropped over the past years. Owners are paying more on their mortgages than the actual value of their properties. Still, they might face the prospect of losing their assets to foreclosure. Hence, their best option is to seek a restructuring of their current loan for them to continue paying the mortgage in such a way that it is within their financial capacity.
However, lenders are not willing to just give up their stake but instead may sit down with borrowers to negotiate a win-win solution for both parties. Borrowers, on one hand, have to take calculated measures and treat this as their last recourse to keep their properties. To increase their chances of getting a restructuring approval, they should look for a commercial loan modification firm that can deliver the best results. A firm that is backed by years of experience in commercial properties can confidently show borrowers their way out from financial turmoil.
It should be kept in mind that the challenges faced by these firms and real property owners are far different from those they have dealt with in the past years. A record number of foreclosures has been made and a lot of other properties are not in a better position. Owners juggle mortgage payments and keeping their commercial properties performing despite the dire circumstances. Real estate has been said to appreciate over time but the global financial crisis has somehow belied this notion. Having these properties seem to be more of a liability than an asset because of the owner's constant struggle to come up with the monthly payments.
The RV Park Financing Market
In the last few years the RV market in general has become very active, thanks in part to the increasing number of retiring baby boomers, snowbirds and the increased amount of disposable income for the average consumer. These increases have indirectly correlated to the number of RV sales and the values and sales of RV parks. Finally, along with this comes the increased amount of financing available for these parks.
Lenders and their bean counters have had a hard time understanding the nature of the business. Most fear that all income could be lost in a day because of the mobility of the tenant and with the limited amount of value in the land and improvements all equity could be lost in the event of foreclosure. Five years ago the number of lenders willing to finance RV parks was a quarter of what it is today. The lenders that have realized that there is stability in the income and most RV parks operate with excellent cash flows have been able to make secure loans with higher returns than they are seeing on other types of commercial property.
There are two tiers of lenders in the market, those for loans less than $1,000,000 and those above $1,000,000. Lenders making loans of $1,000,000 or less usually require personal guarantees. The majority of these loans are made by small commercial banks, local savings and loans and the SBA. Above $1,000,000, there are number of financing vehicles including, commercial lending institutions, mortgage conduits and life insurance companies. Nationwide commercial lending companies such as GE Capital have dominated the industry. However, a few smaller more regional based banks have established that RV parks even with their cyclical nature are sound investments and worthy of their portfolios. As they become more familiar with the RV park/resort market underwriting criteria should become less stringent and loans should be easier to obtain.
Above and below $1,000,000 the interest rates continue to hover around 6.5% to 10% depending on the quality and type of occupancy in the RV parks. Fixed rates are available but reserved for larger, nicer parks with more stable occupancy. Adjustable rates are usually based upon LIBOR, 11th DCOF or 1 yr treasuries, Prime rate based loans are usually that last alternative. Amortizations are usually 20-30 years with 10-15 year terms. Fees are generally less than 2 points plus appraisal, phase I survey, and legal.
Over the next few years the RV industry should become much more of a mainstream lending market. This is due to the huge numbers of consumers expected to enter the market and the increasing numbers of lenders that will follow the trend. In addition, all of the lenders in the RV industry have entered it by way of the mobile home park financing market where competition for loans has become pretty fierce. This transition has occurred because lenders are finding it harder to originate higher yielding loans due to the intense competition for mobile home park loans. As a result of this saturation it is only a matter of time before the RV industry has the number of lending sources as do other area of commercial real estate.
Commercial Financing for Special Purpose Business Properties
Funeral homes, assisted living facilities, campgrounds and other special purpose properties represent one of the most difficult commercial loan situations which will be confronted by a business owner. Unique properties are not easily understood by traditional lenders, so the most common solution involves finding a non-traditional lender for funeral home financing as well as commercial financing for other special purpose properties. Such non-traditional lenders will be appropriate for purchase situations as well as refinancing and new construction.
KEY REASONS FOR DIFFICULTY IN ARRANGING COMMERCIAL FINANCING FOR SPECIAL PURPOSE PROPERTIES
(1) By definition special purpose properties are not similar to other commercial properties. This makes many lenders uncomfortable due to the likely difficulty of finding another owner for a unique commercial property should it be necessary due to a loan default.
(2) For funeral homes and many other special purpose commercial properties, most of the business value is represented by non-real estate assets. With traditional commercial lenders that focus on commercial real estate loans, it is almost impossible to get a loan based on the real estate value and the business value. For example, it is not uncommon to have a situation in which the real estate for a funeral home is valued at less than one million dollars while the overall business value is in excess of three million dollars.
(3) Because commercial financing is so difficult to arrange for special purpose properties such as funeral homes, assisted living facilities and campgrounds, sellers of such properties are generally willing to provide substantial seller financing to assist the buyer in acquiring the business. However, many traditional lenders do not recognize or accept seller financing as a means of reducing down payment requirements for special purpose properties.
(4) Many lenders simply do not understand the business complexities associated with a special purpose property. As a result, it is not uncommon for these lenders to attach onerous and expensive requirements such as business plans and environmental reviews. In most cases such lenders do not even want to make the business loan but will use undesirable loan requirements as a means of appearing to approve a loan when in fact they have disapproved the loan by adding commercial loan terms that they do not expect a commercial borrower to accept.
COMMERCIAL LOAN SOLUTIONS FOR SPECIAL PURPOSE PROPERTIES
For a business borrower facing the situation described above, the highest priority should be to locate a non-traditional commercial lender that engages in the following commercial loan practices:
(1) Openly welcomes special purpose properties and routinely finances such properties.
(2) Provides commercial financing for both the business and real estate.
(3) Accepts substantial seller financing.
(4) Does not add special requirements to the business loan for special purpose commercial properties.
(5) Has a history of making loans for the specific type of property under consideration.
(6) Can accommodate both small and large commercial loans for special purpose commercial properties (for example, loans as small as $100,000 and loans as large as $5 million or higher).
Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.